Hulbert: The Best Still Say Buy

Next week, we'll bring you
highlights from the just-completed San Francisco Money Show.
This week, we offer the forecasts of the best-performing advisors, as
rated by Mark Hulbert,
the leading authority on the performance of newsletter portfolios.
He notes, "I suspect you will be pleasantly surprised by what these top performers
are saying."

"The editors of the best-performing newsletters have
not only survived, but thrived, in both bull and bear markets alike. So their
opinions are especially worth paying attention to. Now, t
hey are betting that the US stock market is the place to be. That’s
the conclusion I draw from an assessment of the recommended US
equity exposures of each of these best-performing newsletters. Of the 22 newsletters
in this study, only four are outright bearish, and a fifth is neutral. The remaining
17 range from bullish to very bullish. The average recommendation among all
entries is an equity exposure of 83.6%. That certainly seems bullish.

"But how does this compare to previous periods? I
have conducted this study on two prior occasions this year. In May, when the Dow stood
at 8560, the comparable average was 86.8% and in March, just prior to the
beginning of the Iraq war, when the DJIA stood at 7552, the comparable average
was 66.8%.
To be sure, those earlier readings look prescient,
since the stock market is significantly higher now than then. But might it be
that these newsletters always are bullish? In that case, their good record this
year would be nothing more than a fluke. Not to worry. In February 2002, for
example, when bullish sentiment was running high among investors in general, and
the DJIA was above 10,000, the market timers with the best risk-adjusted
performances were recommending an average exposure of just 18.9%. The comparable
number in November of last year was 28.5%. On both occasions their caution was
vindicated.

"You might also worry about the bullish
consensus on the contrarian ground that the stock market rarely accommodates the
majority. I do not think contrarian analysis applies in this case. Note
carefully that the newsletters in this study do not reflect the majority among
all letters. They instead represent a small subset of newsletters with the best
long-term performances. The Hulbert Financial Digest
does track sentiment among
all newsletters, and there is a lot less bullishness among this broader group.
The average exposure among all stock market timers we track currently stands
at 20.4%, well off its all time high of 79.7%. It is that 20.4% on which a
contrarian would focus, and because it does not represent excessive bullishness,
would not trigger immediate warning bells. So a real contrast exists between the
best long-term performers and their poorer performing brethren. On the
assumption that those best long-term performers are more likely to be right,
this is good news indeed for the stock market."